For many of us, the scale and far-reaching impact of the COVID-19 pandemic can evoke memories of the 2008 Global Financial Crisis, an event which fundamentally reshaped the way we spend our money. The most significant changes were to our expectations of the role banks and the government play in the construction and stability of our economy.
As such, global events, like the COVID-19 pandemic, present us with the opportunity to innovate and reconstruct broken systems for the better. From our use of technology for work and education, to how we operate in urban spaces, to completely overhauling our economic systems, this pandemic has undoubtedly revealed flaws in our global systems. However, it is the handling of these flaws which is most important. Innovation should not be led by the desire for economic stability but instead by the aspiration to create a better, more equal society.
Australia’s economy is unique. It has historically operated under very low levels of debt and high rates of GDP growth. It is currently projected the public debt that has accrued since the beginning of the COVID-19 pandemic will reach a level approximately 20% of its GDP. The degree to which this is a problem, however, is still open to debate. Taking on debt is always a risk, however it’s worthwhile according to Professor Robert Breunig, director of the Crawford School of Public Policy’s Tax and Transfer Policy Institute.
Professor Breunig suggests that, in the short term, Australia’s position is strong because its economy was healthy prior to the pandemic. Moreover, interest rates have remained very low worldwide, meaning debt is cheap. So, as we see a record high in our government spending, one question arises: how will we pay it back?
According to Professor Breunig, a modernisation of Australia’s current tax system is the key to stimulating the economy and paying back the debts acquired to respond to COVID-19. Breunig suggests that, although we have a progressive tax system on paper, the complexity of the taxation process in Australia creates issues of equity and minimises productivity, given that Australia is unique in its extraordinarily wide range of tax exemptions and deductions to individuals and corporations. As a result, the amount of tax you pay depends on how much time you spend learning how to avoid it. Because of this, many Australians look to invest in assets which provide the largest tax breaks instead of assets which provide high returns. In turn, this minimises the potential for national economic growth as the more economic growth Australia experiences, the more tax the government collects to put back into the economy. Breunig suggests that, instead of relying on direct taxes such as the Personal Income Tax or Corporate Tax, Australia should look more to increasing indirect taxes. GST and Land Taxes minimise dead-weight loss and ensure asset ownership is taxed equitably. In this way, more government revenue can be raised, debts can be paid faster, and every Australian will play their part more fairly.
The challenges we collectively face as a nation will require us to work together and get creative to solve them. Our efforts in staying home and getting tested means that we now get to begin to plan for life post COVID-19, and maybe this means innovating in every facet of our political and economic life to ensure a fairer, better Australia.